What Range of Values Is an Excellent Credit Rating?

A credit rating, or score, is a three-digit number that is basically a grading system that gives creditors a quick snapshot of your credit report and insight as to how you pay your bills and manage your credit. A low score can cost you extra money in interest over the life of a loan or, if you have a really low score, can prevent you from getting credit at all.

Credit Score Calculations

A credit score is also known as a FICO score, which stands for Fair Isaac Corp., the company that developed the system. FICO scores range between 300 and 800. The exact formula for determining one's FICO score remains a secret but Fair Isaac has identified five areas that impact a FICO score: payment history (35 percent), amounts owned (30 percent), length of credit history (15 percent), new credit (10 percent) and types of credit used (10 percent). An "excellent" credit rating is a FICO score between 760 and 850, while a "very good" rating is a score between 700 and 759. The average FICO score is 687, which is calculated by adding up all scores and dividing them by the number of people.

Raising Your Score

If your FICO score isn't "excellent" there are some ways you can improve your score. Some tips include paying your bills on time, refrain from applying for new credit as multiple credit applications can hurt your score, keep open old accounts as having long-term credit can help your score and monitor your credit report for any errors.

Mortgages

The type of loan a person is seeking sometimes gauges credit worthiness. For example, a mortgage company could give more weight to different factors compared with a credit card company. According to Freddie Mac, credit scores ranging from 770 to 850 are considered "very good" and mortgage borrowers within this range usually get the best credit rates.

Auto Lenders

An auto loan lender might take into consideration how much a customer is putting down, as well as how long a person has been at one job and their debt-to-income ratio. In addition, past performance on similar type loans is also considered. So, if a person missed a car payment in years past, that might be more important than an overdue credit card bill.

Credit Cards

Credit card companies may place a greater emphasis on credit card information, such as if a person missed any revolving credit payments. In addition, the system will usually evaluate a student seeking a starter credit card differently than a platinum cardholder, for example.

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What Is a Credit Limit on a Credit Report?

Your credit report can have a significant impact on your ability to gain credit, rent a home, get insurance and get a job. If your credit score is too low, it can affect your interest rates and the amount you pay for security deposits. Insurance companies may deny your application for insurance and a prospective employer may pass you over for employment if you have a low score. A large part of your credit score is the credit limit on your accounts. Your credit limit shows your credit utilization ratio, or the amount of credit you have for your various credit card and credit line accounts.

High Credit Utilization Ratio

If a lender sees most of your accounts at their limit, it may assume that you are not a good credit risk. Typically, when consumers are having difficulty meeting monthly debts, they may access available credit lines to help pay bills and buy necessities. Credit bureaus realize this and can lower your score even if you are paying on time.

Low Credit Utilization Ratio

Low utilization of available credit can adversely affect new credit offers as well. If a prospective lender looks at your report and sees numerous cards with low balances compared with your limits, the lender may decide you are a bad credit risk. Credit bureaus look at how many open accounts you have when calculating your score. If you have more credit available than you can pay back, lenders can consider you a bad credit risk, according to the University of Connecticut.

Look at Your Credit Report

Credit reports can contain inaccurate information. The Fair Credit Reporting Act enables consumers to request a free credit report from each of the three major bureaus once a year. Look at your credit limits and other information to be sure that your lenders are reporting your credit file correctly. If your report contains inaccurate information, you can file a dispute in writing with the credit bureau. The credit bureau will look into your claim and correct the error.

Improve Your Score

A high credit score is essential to receiving low-interest credit offers. Lowering your balances, paying bills on time and not having too many open accounts can, over time, increase your score. Although some companies advertise that they can raise your score, according to the Federal Trade Commission, many of them are frauds. A company may be fraudulent if it tells you to create a new credit identity, asks you to pay before it does anything or advises that you dispute accurate information.

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Are Credit Scores Free?

Your credit score is a number that represents the sum total of your financial history. Three different credit reporting agencies, Equifax, Experian and TransUnion, monitor your use of credit and compile a credit history as well as a credit score to provide to lenders who inquire about your credit. For you to receive your credit score, you'll generally need to pay a fee to the agency you choose.

Free Credit Reports

Many people have heard about the availability of free credit reports, which can lead to confusion when it comes time to pay for a credit score. The federal government requires each of the credit reporting agencies to provide one free credit report to each American consumer once a year. However, this credit report does not need to contain the three-digit credit score. The credit score is based on the information in the report, so checking the free report may be enough to get an understanding of your credit. However, to access the actual score, you'll usually need to pay.

Cost

The cost of a credit score varies from one credit reporting agency to another and depending on what sort of credit reporting package you buy. According to the Federal Citizen Information Center, a credit score from one of the three agencies costs around $15 as of 2011. This means that a package containing credit scores from each of the three reporting agencies would cost around $45, though you can purchase packages online that deliver all three scores for a discounted price. You can purchase your credit score online from one of the reporting agencies or a third-party financial services website.

Free Scores

Many websites claim to offer free credit scores. However, these sites often represent marketing efforts from financial service websites that offer a free credit score only once you've committed to a long-term subscription or paid for other financial reports. When you apply to rent an apartment or get a mortgage loan, the landlord or lender will ask for a fee that goes toward accessing your credit score. Asking for a copy of the score is one way to access your credit score for free, although you paid for it as part of the application fee.

Reasons to Pay

Even if you don't have access to your credit score for free, you may still find it worthwhile to pay for it. Your credit score is the number lenders use to determine whether to approve your loan applications. It also determines what interest rate you qualify for and whether you can rent an apartment or home. If you have reason to believe that you are a victim of identity theft, which would allow someone else to damage your credit score, the $15 charge for a copy will deliver a valuable tool to ensure that your credit is secure or identify damage quickly. Likewise if you plan to apply for a mortgage, you can make a more accurate interest rate estimate before you apply if you know your own credit score.

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How Does a Bankruptcy Affect Credit After Two Years?

While you should always do everything possible to avoid bankruptcy, sometimes it is the best thing for your financial future. You can recover from bankruptcy before it leaves your credit report. Take an active approach to rebuilding credit and two years might be all you need -- sometimes a bit less.

Identification

Bankruptcy will affect your credit in some way as long as the bureaus report it. Chapter 13 stays for seven years and Chapter 7 for 10 years. However, all negative items become less important with each passing day. After two years, a bankruptcy probably won't affect your credit enough to prevent obtaining a credit card or major loan, such as a mortgage. Some lenders, such as the Federal Housing Administration, approve applicants with a bankruptcy in the past year.

Considerations

Even if you have a good credit score, a bankruptcy on your report will probably mean paying a bit more on future loans. According to Bankrate, borrowers tend to pay 2 or 3 percent more for mortgages when they have a bankruptcy in the last two to five years. You might have to shop around to find the lowest rate possible or a lender willing to overlook a recent bankruptcy.

Potential Benefit

If you filed Chapter 7 or completed your Chapter 13 repayment plan, bankruptcy might put you in a better position to obtain credit than before you filed, suggests Moran Law. You probably wiped out a significant portion of your debt or at least have a payment plan tailored to your monthly income. Also, the credit bureaus delete the history on bankruptcy accounts and list them as "included in bankruptcy." A bankruptcy filing could improve your credit score because you might wipe out several negative items that cost more points than the bankruptcy, according to Smart Money.

Tip

You must start using credit again after bankruptcy to build a good credit history as long as you feel you can handle a loan or line of credit. The first place to look for credit after bankruptcy is either a secured credit card -- a credit card with a security deposit on the limit -- or a store credit card, which typically have the lowest lending standards. Keep future balances and focus on paying bills on time. Avoid applying for too many accounts too soon. A rush of credit applications will make you look desperate for credit.

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Can Canceled Debt Be Removed From a Credit Report?

Canceled debt typically appears as a charge-off account on a consumer credit report. Charge-off accounts will negatively impact your credit rating for years. Canceled debt, or charge-offs, can be removed from a credit report in accordance with the laws outlined in the Fair Credit Reporting Act. Consumers should be aware of the laws that pertain to canceled debt and monitor their credit report for inaccuracies and items that fall outside the statute of limitations.

What Is Canceled Debt?

Canceled debt is the term used when a commercial lender forgives or cancels debt due to a consumer's inability to repay a loan. Canceled debt amounts often include accrued interest as well as the principal loan amount. If the amount of the canceled debt exceeds $600, creditors may issue a Form 1099-C to the consumer. Consumers must report the amount of the canceled debt as income for the tax year during which the debt was canceled.

Credit Report Impact

Before a lender cancels the debt, the fact that the payments on the account are delinquent negatively impacts your credit rating. Payment history determines 35 percent of your credit score; creditors typically report delinquent accounts for six months prior to charging off the debt. After the debt is canceled, the resulting entry can negatively impact your credit until the statute of limitations expires. In addition, canceled debt affects your debt-to-credit ratio, which accounts for 30 percent of your total score. Closed canceled debt accounts reduce the debt, but they also reduce the available credit.

Statute of Limitations

According to the FCRA, credit-reporting agencies must remove negative account listings from your credit report after seven years. Consumers can monitor their credit reports by receiving a free annual report from each of the three credit-reporting agencies. When the seven-year statute of limitations expires, the canceled debt account listing should be automatically removed. If the reporting agency neglects to delete the item, consumers can file a dispute based on the FCRA limitation statutes.

Inaccuracy Disputes

The only other ways that a canceled debt account can be removed from your credit report is if the information is inaccurate or if the lender agrees to delete the listing. Consumers must file a dispute with any and all of the three reporting agencies that incorrectly list the account information. Each agency -- TransUnion, Equifax and Experian -- offers online dispute forms. It is not likely that the lender will forgive the debt and agree to not report the account unless the debtor agrees to pay a larger portion of the debt, meaning a smaller amount of debt is forgiven.

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Does Paying a Bill on Your Credit Score Make Your Score Go Up?

Boosting your credit score takes time and patience. In order to boost your score, you must focus on the top areas impacting your credit score each month. Paying a bill on your credit report helps your score to increase as long as the creditor reports to the three major credit bureaus each month.

Credit Score Impacts

Creditors report information to the credit bureaus monthly. Based on the information reported, the credit bureaus calculate your credit score. There are five primary factors influencing your credit score each month which include payment history, amounts owed, length of credit history, types of credit and new credit. At 80 percent of your score, the top three factors to consider when boosting your credit are payment history, amounts owed and length of credit history. If you pay your bills on time, keep your balances low and maintain a positive account history over time, your credit score will go up.

Creditor Reports

Paying a bill can only impact your credit score if the creditor reports monthly to the major credit bureaus. While most credit card companies and lenders report to credit bureaus, there are many household bills you pay each month that do not get reported to the credit bureaus. For example, utility accounts, cell phones, and internet expenses. In most cases, these creditors do not report your account information unless your account is charged off. Once your account is charged off, it negatively impacts your credit score each month until paid in full. After you pay the bill in full, it is reported as paid, but may not fall off your credit report for another seven years.

Amount of Impact

How much you pay on your bills each month is an important factor when attempting to boost your credit score. Generally, the lower your balances, the more your score increases each month. This is due to your credit utilization ratio. Your credit utilization ratio is the amount you charge or owe relative to your credit limit or original account balance. For example, if you have a credit card with a $2,000 limit and charge $1,000, your credit utilization ratio is 50 percent. According to Bankrate, a good credit utilization ratio is 30 percent or below.

Considerations

Making consistent payments on your bills helps to ensure your credit score improves each month. However, ensure your payments are substantial enough to reduce your credit utilization ratio to below 30 percent. If you can't afford making large payments, consider contacting your creditor to increase your credit limit or lower your interest rate. As long as you have a positive account history, your creditor may be willing to negotiate new rates to help you better manage your credit account.

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How Does a Misdemeanor Affect Your Credit Score?

A credit score is a summary of your credit history from the past seven years. It includes your borrowing and repayment information, as reported to the credit bureaus by lenders. Your credit report does not include your criminal record. Therefore, a misdemeanor will not affect your credit score. However, it could still keep you from getting a job or renting an apartment, as many employers and landlords run criminal checks, as well as credit checks.

Credit Score

Whenever you borrow money, whether a loan, a credit card, a mortgage or a cell phone contract, the lender will begin reporting about this to one or more credit bureaus. The credit bureaus collect this information and convert it into a three-digit credit score. The formula used to calculate the score is secret, but it includes the total amount you owe, your repayment behavior, the length of your credit history, types of credit you use, and the number of recent credit applications. When you want to borrow money, that lender will request your credit score from the credit bureaus. The score tells potential lenders whether you're a safe bet. The lower your score, the higher the risk for the lender. People with high credit scores find it easier and cheaper to borrow money.

What Is on Your Credit Report

Your credit report includes identifying information, such as your name, address, date of birth, driver's license number and Social Security number. It may have details of your employment. The report lists all your debts, including settled ones, from the past seven years. It includes any bankruptcies, financial court judgments and liens. If you've missed any payments or defaulted on a debt, it will be on your report.

What Is Not on Your Credit Report

Your credit report does not contain your criminal record. It also doesn't include any information on your income or any savings accounts you may have. There is no mention of your medical history, political affiliation, personal background, religious preference, sexual orientation or race.

Misdemeanors and Criminal Records

While it will not show up on your credit report, a misdemeanor will appear on your criminal record. There are no expiration dates for misdemeanors. They stay on your criminal record forever. Depending on your field of work, a misdemeanor can prevent you from getting a job. Many colleges also run criminal background checks on applicants. A misdemeanor will not stop you from getting a mortgage, but it can cause problems if you want to rent a place. If the misdemeanor is a one-off, you may be able to get your criminal record sealed. This is known as expungement, and the option is only available to first-time offenders.

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